Response to the ESMA Consultation Paper on the Review of RTS 1 and RTS 2


FESE welcomes the opportunity to respond to the ESMA Consultation Paper on the Review of RTS 1 and RTS 2.

We agree with ESMA on increasing the large-in-scale (LIS) thresholds for exchange-traded funds, developing a more consistent and clear approach on non-price forming transactions, and strengthening pre-trade transparency requirements in general. FESE also shares ESMA’s general views on the fields and flags to be populated when publishing transparency information and providing reference and quantitative data for transparency calculations. However, we disagree with the proposal to prescribe the order of the population of trade flags as it is potentially very disruptive and does not have obvious value-added.

With regards to non-equity, we appreciate ESMA’s announced intention to conduct a targeted review of the threshold methodology for derivatives, other than commodity derivatives. In our view, the methodology seems to be especially flawed for the sub-asset classes of bond options and stock futures. Moreover, we see also room for improvement for stock index options and stock index futures. In the response, we have included several suggestions on how to fix the existing issues.

For commodity derivatives, we acknowledge ESMA’s proposals and have identified those areas that are worth further consideration. As a general remark, we believe that it is crucial that the liquidity assessment and the LIS threshold calculation should be based on order book data alone.

Lastly, we underline that ESMA’s recommendations are potentially very disruptive and will trigger substantial IT engineering efforts. The industry can only start the impact analysis, specifications updates, and engineering work once the final provisions get published. The suggested entry into force date by 2023 looks therefore over-ambitious. We would consider a 12 to 18 months implementation period as the minimum. Having said this, we believe that for commodity markets it would be good if the new calculations for the liquidity assessment and the pre-trade transparency LIS thresholds would already become effective sooner, e.g. from June 2022.